Gov. Katie Hobbs to erase medical debt for 1M Arizonans with COVID relief funding

  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

Arizona will use up to $30 million in federal coronavirus relief funds to erase the medical debts of up to 1 million residents, Gov. Katie Hobbs announced Monday.

"This was an easy decision. Arizonans deserve a break, and they deserve a government that fights for them, helping ensure that medical debt is not going to torpedo their lives," Hobbs, a Democrat, said in a news conference on Monday.

The state inked a contract with RIP Medical Debt, a nonprofit that will find and buy debt held by collection agencies, medical providers and hospitals using the grant dollars. The money is from the 2021 American Rescue Plan Act.

The debt can sometimes be purchased for pennies on the dollar, meaning that $30 million could erase $1.5 billion to $2 billion in debt, said Jeff Smedsrud, a board member at RIP Medical Debt who lives in Scottsdale.

People eligible for debt relief include those with an income up to 400% of the federal poverty level or who owe medical bills equal to 5% or more of their annual income, Smedsrud said. That means families of four with income up to $124,000 would qualify. Eligible individuals will be anonymously notified their debt has been paid as part of the state's new effort, which could take about two years to be complete, he said.

At least two other states — Connecticut and New Jersey — have moved to erase medical debt owed by their residents, in addition to a growing number of municipal and county governments across the nation.

Estimates of how many Americans owe medical debt vary. An analysis of U.S. Census survey data this year by the Kaiser Family Foundation said nearly 1 in 12 adults owes some medical debt. Those individuals owe at least $220 billion, according to the analysis.

Hobbs and other proponents of medical debt relief say such debt disproportionately impacts communities of color and can have far-reaching effects on an individual's credit and their ability to access future health care, not to mention the ability to pay for daily essentials.

The issue has drawn increasing attention and concern. Last year, the nation's three credit reporting companies made changes to remove paid debts and medical collections under $500 from credit reports. Democratic President Joe Biden has made health care affordability and medical debt reform a piece of his "Bidenomics" plan as he seeks a second term in the White House.

"President Biden and I strongly believe healthcare should be a right and not a privilege just for those who can afford it, and no one should have to go into debt just to get the quality healthcare that they need," Vice President Kamala Harris said in a Monday statement responding to Hobbs' announcement. Harris is slated to visit Phoenix on Friday.

Arizona's contract with RIP Medical Debt was not competitively bid, as is typically required by law to guarantee the best use of taxpayer dollars. State records show the Arizona Department of Administration used a "sole source" contract, which is allowed when there is only one provider for a good or service and no other alternative. No other organizations that retire debt came forward during a four-day comment period in December, the records show.

The contract also shows the state will pay $20 million initially, with the governor's office reserving sole discretion to spend another $10 million for a total of $30 million. No more than 10% of those funds can be used for RIP Medical's overhead and administrative costs, the documents say.

Asked about potential violations of Arizona's gift clause triggered by rolling out the funds, Hobbs said her in-house lawyers had reviewed the contract to ensure it complies with state law. The gift clause in the state Constitution prohibits public dollars from being used for private interest and creates a balancing test when taxpayer dollars go to private entities.

The conservative Goldwater Institute, which has filed several lawsuits over gift clause violations, declined to comment on the governor’s action Monday.

'Life is at a minimum'

Jim Baker, of Peoria, said he owes a little over $20,000 in medical debt after two cancer diagnoses in recent years. Snowballing conditions drove up his bills. He was unable to find a health care provider that would put him on a payment plan, so the costs went onto his Mastercard, Baker said.

All of his Social Security checks go toward that debt, which Baker described as life-altering. He goes to food banks, and wore a $4 thrift shop polo shirt to the governor’s press conference. Social interactions were curbed because he couldn’t afford them, and Baker now relies on visits with family and walks with Peppa, his Chihuahua and miniature pinscher mix.

Baker is now a member of Healthcare Rising Arizona, an advocacy group that has pushed for health care affordability, including a 2022 ballot measure that lowered caps on medical debt interest.

"Everything right now in my life is at a minimum,” Baker said. “If there were an opportunity to have my medical debt forgiven, then it would allow me to move on to my life in a substantial way instead of just survival."

Over 70% of Arizonans voted to approve Proposition 209 in 2022, lowering the cap on medical debt interest and increasing the amount of personal assets that creditors cannot touch. The voter-approved measure was challenged in court, but its main tenets are in effect.

The Arizona Court of Appeals is expected to issue an opinion in the case this year, according to David Hameroff, past president of the Arizona Creditors Bar Association, which challenged the proposition. The association has very few members who collect medical debt, he said.

“Nobody chooses to break a leg,” he said. “People do choose to buy a Vizio TV and not pay for it.”

Reach reporter Stacey Barchenger at or 480-416-5669.

This article originally appeared on Arizona Republic: AZ Gov. Hobbs to erase medical debt for 1M using COVID relief funds